Federal Signal Corporation

Greetings and welcome to the Federal Signal Corporation fourth quarter earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Felix Boshin, Vice President, Corporate Strategy and IR. Please go ahead.

Good morning, and welcome to Federal Signal's fourth quarter 2025 conference call. I'm Felix Boschen, the company's Vice President of Corporate Strategy and Investor Relations. Also with me on the call today is Jennifer Sherman, our President and Chief Executive Officer, and Ian Hudson, our Chief Financial Officer. We will refer to some presentation slides today, as well as to the earnings release which we issued this morning. The slides can be followed online by going to our website, federalsignal.com, clicking on the investor call icon, and signing into the webcast. We've also posted the slide presentation and the earnings release under the investor tab on our website. Before I turn the call over to Ian, I'd like to remind you that some of our comments made today may contain forward-looking statements that are subject to the Safe Harbor language found in today's news release and in Federal Signals filings with the Securities and Exchange Commission. These documents are available on our website. Our presentation also contains some measures that are not in accordance with U.S. generally accepted accounting principles. In our earnings release and filings, we reconcile these non-GAAP measures to GAAP measures. In addition, we will file our Form 10-K later today. Ian will start today with more detail on our fourth quarter and full-year financial results. Jennifer will then provide her perspective on our performance, current market conditions, our multi-year growth initiatives, and go over our outlook for 2026, before we open the line for any questions. With that, I would now like to turn the call over to Ian.

Thank you, Felix. Our financial results for the fourth quarter and full year of 2025 are provided in today's earnings report. Before I talk about the fourth quarter, let me highlight some of our full year consolidated results for 2025. Net sales for the year were $2.18 billion, a record high for the company, and an increase of $319 million or 17% compared to last year. Organic net sales growth for the year was $205 million or 11%. Operating income for the year was $340.9 million, an increase of $59.5 million or 21% from last year. Net income for the year was $246.6 million an increase of $30.3 million, or 14% from last year. Adjusted EBITDA for the year was $438.9 million, up $88.3 million, or 25% compared to last year. That translates to a margin of 20.1% this year of 130 basis points from last year. GAAP diluted EPS for the year equated to $4.01 per share of 51 cents per share, or 15% from last year. On an adjusted basis, we reported record full year earnings of $4.23 per share, of 89 cents per share, or 27% from last year. Orders for the year were $2.22 billion, an increase of $374 million, or 20% from last year. Backlog at the end of the year was $1.04 billion, an increase of $45 million or 5% from last year. For the rest of my comments, I will focus mostly on comparisons of the fourth quarter of 2025 to the fourth quarter of 2024. Consolidated net sales for the quarter were $597 million, an increase of 100 or 27% compared to last year. Organic net sales growth for the quarter was $85 million or 18%. Consolidated operating income in Q4 this year was $83.5 million, up $13.4 million or 19% compared to last year. Net income for the quarter was $60.8 million, an increase of $10.8 million or 22% from last year. Consolidated adjusted EBITDA for the quarter was $119.4 million, up $30.1 million, or 34% compared to last year. That translates to a margin of 20%, an increase of 110 basis points from last year. GAAP diluted EPS for the quarter was $0.99 per share, up $0.18 per share, or 22% from last year. On an adjusted basis, EPS for Q4 this year was $119 per share, an increase of 29 cents per share, or 33% compared to last year. Orders for the quarter were $647 million, up $201 million, or 45% from last year. Orders in Q4 this year included $132 million of acquired backlog. In terms of our fourth quarter group results, ESG's net sales were $504 million, an increase of $108 million, or 27% compared to last year. ESG's adjusted EBITDA for the quarter was $109 million, up $26.1 million, or 31% compared to last year. That translates to an adjusted EBITDA margin of 21.6% in Q4 this year, up 70 basis points from Q4 last year. ESG reported total orders of $566 million in Q4 this year, an increase of $301 million, or 55% from last year. SSG's fourth quarter sales were $93 million, up $17 million, or 23% compared to last year. SSG's adjusted EBITDA for the quarter was $23.4 million, up $7 million, or 43% from last year. SSG's adjusted EBITDA margin for the quarter was 25.2% of 360 basis points from last year. SSG's orders for the quarter were generally in line with last year at approximately $82 million. Corporate operating expenses in Q4 this year were $26.5 million compared to $10.5 million last year, with the increase primarily due to a $13 million increase in acquisition and integration-related expenses. Turning now to the consolidated statement of operations, where the increase in net sales was a $36.7 million improvement in gross profit. Consolidated gross margin for the quarter was 28.4%, up 30 basis points compared to last year, as a percentage of net sales of selling, engineering, general, and administrative expenses for the quarter were down 110 basis points from Q4 last year. During the fourth quarter of this year, we recognized $13.3 million of acquisition-related expenses, up from $300,000 in Q4 last year. The increase included an aggregate expense of $6.8 million to increase the fair value of contingent consideration associated with the acquisitions of HOG and Standard. as well as expenses incurred in connection with the acquisition of New Way. Other items affecting the quarterly results included a $1.3 million increase in amortization expense, a $1.7 million interest expense, a $200,000 reduction in other expense, and the non-recurrence of a $3.8 million pre-tax non-cash pension settlement charge recognized in the prior quarter. Income tax expense for the quarter was $17.8 million, an increase of $4.9 million from last year, with the year-over-year change largely due to higher pre-tax income levels and the recognition of fewer discrete tax benefits in the current year quarter compared to the prior year. Our GAAP effective tax rate for full year 2025 was 24%, including discrete tax benefits. For 2026, we currently expect a tax rate of approximately 25%, excluding any discrete tax benefits. On an overall GAAP basis, we therefore earned 99 cents per diluted share in Q4 this year, compared with 81 cents per share in Q4 last year. To facilitate earnings comparison, GAAP earnings per share for unusual items recorded in the current or prior periods. In the current year quarter, we made adjustments to GAAP earnings per share to exclude acquisition and integration related expenses debt settlement charges, and purchase accounting expense effects. In the prior year quarter, we also excluded the pension settlement charge that I just noted. On this basis, our adjusted earnings in Q4 this year were $1.16 per share, compared with 87 cents per share in Q4 last year. Looking now at cash flow, where we generated $97 million of cash from operations during the quarter, an increase of $7 million or 7% from Q4 last year. That brings our full-year operating cash generation to $255 million, an increase of $23 million or 10% compared to last year. Early in the fourth quarter, we executed a new five-year credit facility, replacing the $800 million credit facility that was previously in place. During the fourth quarter, we completed the acquisition of Newway for an initial payment of approximately $413 million. And in early January, we completed the acquisition of Mega for an initial payment of approximately $45 million. Our current net debt leverage ratio remains at a comfortable level, even after factoring in recent acquisitions. We ended the quarter with $501 million of net debt an availability under our credit facility of $925 million. With the increased borrowing capacity under our new credit facility and our improved cash generation, we have significant flexibility to invest in organic growth initiatives, pursue additional strategic acquisitions like Mega, pay down debt, and return cash to stockholders through dividends and opportunistic share repurchases. On that note, we paid dividends $5 million during the quarter reflecting a dividend of 14 cents per share. That concludes my comments, and I would now like to turn the call over to Jennifer.